Contrarian Stock Market Investing Guide

We always find it important to test our current market hypothesis against
the prevailing market wisdom. Since we are contrarians and tend to run against
the herd, we constantly need to check ourselves against the crowd to ensure
our market assumptions are fresh and unique.

• In the Bullish camp we hear a lot of talk about how the markets will
bounce back 'as they always do' from the current slump. This Perma Bull outlook
seems unrealistic to us especially in light of the current unprecedented credit
problems. But it has consistently been the right outlook and the contrarian
within us says it may very well be the scenario that plays out simply because
it seems least credible.

• In the long-term Bullish but short-term cautious crowd the consensus
is that we have 2 more months of volatility and corrective action before it's
off to the races again. In other words, a good buying opportunity is approaching
later this year.

This crowd we do take seriously. Firstly because it contains some long time
market commentators who we respect and with good track records. But secondly,
in the face of all the doom and gloom, end of world, credit crunch scenarios
that the market has had thrown at it we STILL have not had so much as a 10%
correction in the major indexes.

Add into the mix the fact that the Fed will open the sluice gates once things
get really bad and it's a fair bet that this middle of the road outlook may
indeed be correct. Unfortunately, we're just not the middle roaders - so onto
the bearish case...

• We are seeing some troubling signs out there which are forcing us to
be more cautious than the above 2 scenarios.

Firstly, we have constantly been refreshing our views in 2007
crash market stock update. Now we realize crashes are very rare but as
detailed in the above article, the similarities between today and 1987 are
a little bit too eerie to ignore. However, our hypothesis is based on the
fact that long-term bonds will turn down and soon. That has not happened
in a material way yet, so we cannot confirm this scenario is underway.

Secondly, the fact the yields on 30 day T-Bills dropped through the floor
last week indicates that nobody is brave enough to put the Fed injected liquidity
to work. Institutions have chosen to park their cash in the safest instrument
they know and adopt a wait and see attitude for at least 30 days.

Now this of itself doesn't surprise us, but what does surprise us is that
for the longest time inflationists have told us deflation is virtually impossible.
Since the Fed can inject an unlimited amount of money into the system and keep
it afloat, deflation can never happen. WRONG! Deflation is possible if nobody
is willing to do anything with the money the Fed has injected! And that's exactly
what we're seeing now. The term 'pushing on a string' comes to mind.

And thirdly, we are still haunted by Ian
Gordon's K-Wave analysis that in the Kondratieff Winter we experience
a deflation AFTER a credit crunch and debt is expunged from the system though
defaults. BINGO! Are we not in a credit crunch now?

As we showed in our article "Gold
Stock Market Quote say BUY", the fact that the yield curve has widened
considerably (in no small part due to the 'panic' into short-term paper)
and Gold stocks have held above their 1 ½ year support whilst major
indexes have turned downwards, indicates to us that we may actually be at
the start of another 2 year Bear Market akin to the 2000/2002 experience.

Career Brief: Greg qualified as the youngest Chartered
Accountant and Chartered Financial Analyst (CFA) in South Africa in 1998 at
25 years old. After completing his traineeship with Grant Thornton he moved
to London where he worked for JP Morgan Chase in their Fixed Income Swaps Division.
Sick of the grey skies and cold weather Greg relocated to Atlanta, Georgia
where he spent the next 4 years freelancing as a management consultant. His
targeted clients were fast growing mid size US based companies and he worked
across many industries including credit cards, health insurance and energy
trading. Greg has recently returned from Sydney Australia where he spent the
last 2½ years working in Equity Derivative Structuring for Perpetual
investments a major Australian Asset Management Company.

Greg has a passion for the markets and has been writing
Greg's market newsletter for 2-years. A newsletter focused on metal and energy
stocks and recently non-resource small caps listed in the US and Internationally.

This article is intended solely for information purposes.
The opinions are those of the author only. Please conduct further research
and consult your financial advisor before making any investment/trading decision.
No responsibility can be accepted for losses that may result as a consequence
of trading on the basis of this analysis.